How We Choose the Best Business Loan for Minorities
We used the following criteria to choose the best lenders for minority entrepreneurs:
- Loan Features:We looked at the types of loan products available, including loan amounts and term lengths.
- Application process: The length of the application, documents required, and whether or not a hard or soft pull on your credit were all things we looked at when choosing lenders.
- Interest rates and fees: All loans come with an interest rate, but some lenders have higher fees than others.
- Qualification process: To qualify for any loan product, lenders will look at your credit score, monthly income, and length in business.
- Customer support: Customer support is always a consideration no matter the loan type. We chose lenders who are easy to contact via phone, email, and live chat.
- Online user reviews: We turned to trustworthy sites like Trustpilot to look at user reviews from past customers.
- Perks and Bonuses: Occasionally, loan products may offer perks and bonuses, such as payment flexibility, advertising transparency, and advanced technology.
U.S. Small Business Administration (SBA) Loans for Minorities
The SBA provides comprehensive and unique resources to help all small businesses succeed, and is focused on creating an ecosystem for the healthy development of minority-run businesses. Below are the following small business loans offered by the Small Business Administration:
- SBA 7(a) - This program has the goal of funding small businesses up to a maximum of $350,000. A unique feature is the speed in processing and approval of applications. Learn more about SBA 7(a) loans
- SBA Community Advantage Loans - Established in 2011, the SBA Community Advantage Loan program has the goal of increasing underserved communities’ access to credit. The maximum loan amount is $350,000.
- SBA Microloan Program - Lending intermediaries work with smaller businesses needing funding. The maximum loan via this program is $50,000. Borrowers are able to use the funds as needed, except for paying off debts or making real estate purchases. Learn more about SBA Microloans
- HubZone Contract Program - This program is focused on providing up to 3% of Federal Contracts to underserved communities.
It’s important to note that the SBA partners with lending organizations that work with minority-run businesses at the local level.
Nonprofit Loans and Other Lending Programs
Minority business owners aren’t limited to seeking funding from traditional financial institutions. There are numerous local, national, non-profit, and for-profit organizations that support unique communities. These partners may offer resources that traditional lenders cannot provide.
Union Bank’s Business Diversity Lending
Diversity Lending provides a variety of loan and banking products. Qualified customers can receive up to $2.5 million in funding. Union Bank also provides Minority Business Certification assistance through its certification center, a key component to proving a business is minority-owned.
Accion is focused on providing inclusive financial services and partnerships. Accion helps small businesses around the globe via equity investments, business advising, and partnerships.
Those looking for a crowdfunding platform to fund their business should explore Kiva. The organization provides comprehensive support for micro-entrepreneurs. Kiva has a global audience but also provides services for U.S.-based entrepreneurs. For individuals looking to donate and lend funds to entrepreneurs, Kiva borrowers have a 96% repayment rate.
Business Consortium Fund (BCF)
BCF is part of the National Minority Supplier Development Council. The fund has microloans available that range from $10,000-$75,000 for qualified businesses. Loaned money can only be used in ways that are predetermined by BCF.
Indian Loan Guarantee and Insurance Program (ILGP)
ILGP program is available to enrolled members of tribes in the United States. In addition to being an enrolled member of a tribe, the company seeking funds must be at least 51% minority-owned. The company must also be focused on elevating and uplifting Native American Communities through its services.
Community Development Financial Institution Loans (CDFI)
CDFI fund partners with financial institutions across the United States. Currently, there are a little over 1,000 member institutions. These organizations make lending decisions unique to the communities that each partner serves.
Immigrant and refugee entrepreneurs face an uphill battle in establishing credit. Accompany Capital helps these groups gain access to credit via microloans, lines of credit, and small business loans.
U.S. Department of Agriculture (USDA) Business and Industry Loan
USDA Business and Industry loan program partners with various financial institutions who then distribute loan funds to applicants who meet predetermined criteria. Applicants’ projects should be based in a rural location. The Business and Industry Loan is not specifically targeted toward minority business owners.
Business Grants and Additional Resources for Minorities
In addition to online small business loans and nonprofit loans, grants are also available to minority business owners. Grant programs are a wonderful way to find funding for specific areas of one’s business, and best of all, small business grants do not need to be paid back.
SBA 8(a) Business Development Program - For entrepreneurs looking to gain access to government contracts, the SBA 8 (a) program helps qualified businesses work for the Federal Government through Sole Source Contracts. This allows businesses to avoid going through the bidding process in order to be granted a Federal contract.
SCORE - SCORE connects entrepreneurs with mentors that provide business-focused support. SCORE mentors can be found across the U.S.
Small-business grants - Grant funding can be an attractive way to pay for specific components of a business. Small business grants can be found via the SBA, your local municipality, or your state.
Minority Business Development Agency (MBDA) - Starting a business is difficult. Dealing with expansion and the growth of a business is even more challenging. MBDA works with entrepreneurs during the expansion and growth seasons of their businesses.
First Nations Development Institute Grant - Grants issued by the First Nations Development Institute are specifically focused on the economic betterment of Native American communities. With that in mind, businesses that are focused on this initiative are the most likely to win grants issued by this agency.
National Minority Business Council -This non-profit organization helps to connect minority businesses with adjacent professional support. The National Minority Business Council also seeks to create a community ecosystem that provides business additional resources to its members.
Which States Have The Most Minority-Owned Small Businesses?
According to MaxFilings, states with the most minority-owned small businesses include:
- California (1.6 million)
- Texas (1.1 million)
- Florida (926,000)
- New York (708,000)
- Gergia (371,000)
States with the least minority-owned businesses are
- Vermont (2,300)
- North Dakota (3,100)
- Wyoming (4,000)
- South Dakota (4,000)
- Maine (4,300)
The top five states with the highest percentage of minority-owned small businesses include
- Hawaii (57.6%)
- Texas (42.3%)
- District of Columbia (41.1%)
- California (41%)
- New Mexico (39.3%)
Who Qualifies for Minority Small Business Loans?
Minority-owned businesses are businesses where 51% or more of the firm is controlled by minorities, women, or veterans. In addition to meeting the minority-owned ownership threshold required by various government agencies, there are other requirements the borrower must meet. Businesses may be required to show their yearly revenue as determined by the lender. A minimum credit score and other details determined by the potential lender must also be met.
How Do You Apply for Business Loans for Minorities?
When applying for a loan with an online lender, you’ll fill out a preliminary application that takes just a few minutes. From there, you’ll be contacted by a representative from the company and asked for more details about your business. This may include a business plan, tax returns, income statements, and your business tax ID. You should get a lending decision within a few days, and funds are usually dispersed within hours to days of loan approval.
For minority-owned businesses, there are numerous ways to access the resources needed to grow a business. For those looking for loans, professional support, or grant programs, it’s likely that there is a program that will fit your business needs.
There has been a growth of financial institutions aiming to meet the needs of historically underserved communities. Finding the right loan products as a minority business starts with research and ends with personal preference.
*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.